BOSTON – State regulators kicked off hearings Tuesday on a deal to sell power from the proposed Nantucket Sound wind farm to National Grid with a warning for the project’s opponents.

“I want to make absolutely clear the seriousness with which we regard this behavior,” Department of Public Utilities Chairwoman Ann Berwick said about breaches of a non-disclosure agreement by Cape Wind’s primary opposition group, the Alliance to Protect Nantucket Sound.

Claims that the alliance’s attorney sent out two mass e-mails with confidential bidding information provided by National Grid are “undisputed,” Berwick said.

Tuesday’s daylong proceeding above Boston’s South Station was the first in two weeks of testimony from more than a dozen witnesses that the DPU will consider in determining whether the proposed contract between National Grid and Cape Wind is reasonable and cost effective.

Under the contract, the utility would buy power from Cape Wind for 18.7 cents per kilowatt-hour in the first year of a 15-year contract. The total additional cost to the average residential customer in the state who buys power from National Grid would be about $1.50 per month, according to the utility’s calculations.

The alliance and other opponents of Cape Wind have pushed for disclosure of confidential information on the total cost of the project and other pricing issues since the DPU first took up a review of the proposed energy deal.

While Berwick deferred on ruling whether to punish the alliance for breaching the non-disclosure agreement, her displeasure was clear. If it happened again, there would be “serious sanctions,” including the possibility of a report to the state board of bar overseers, she said.

Price check

Despite Berwick’s reproach, the alliance’s attorney, Glenn Benson of Perkins Coie, aggressively moved forward with his cross examination of two witnesses presented by Cape Wind.

Benson questioned Cape Wind Vice President Dennis Duffy and Robert Stoddard, vice president of the economic consulting firm Charles River Associates, about the difference between the price National Grid has agreed to pay Cape Wind for renewable energy credits under the contract and the price for the credits on the open market over the past several years.

During that time, the price for the credits, which utility companies must purchase under state law, ranged from $15.50 to $41.50 per megawatt-hour, according to testimony filed by a witness for the alliance, Stoddard said.

The so-called “alternative compliance payment” that National Grid has agreed to pay for the credits in the Cape Wind deal is $60.93 per megawatt-hour, Benson said.

When converted into kilowatt hours, the cost of the credits is about one-third of the price that National Grid has agreed to pay for Cape Wind’s power and other attributes.

The price of Cape Wind’s power is far above the average current price for electricity on the market, Benson said.

But, Duffy and Stoddard said, the long-term contract for Cape Wind’s power contains other benefits and cannot be compared on an “apples to apples” basis with buying these commodities in the spot market as Benson suggested.

Construction factor

Benson pushed Duffy and Stoddard on a 3.5-percent annual escalation in the price of Cape Wind’s power, which could go into effect even before the project is put into operation, as well as the time frame for the project’s construction.

If Cape Wind does not begin construction by the end of the year, it may not qualify for a federal tax credit and the price of the project’s power could increase, Benson said.

The tax credit has been extended seven times since it was adopted in 1994 and the industry expects that to happen again, Duffy said.

According to provisions in the National Grid contract, the project is not required to be in operation until as late as 2018, Benson said. “We will do all we can to get this project online as soon as possible, and I’m sure your firm will do its best to stop us from getting it online as soon as possible,” Duffy said.

Sparring match

Benson also peppered Duffy with a series of questions about Cape Wind’s credit rating, a lack of financial assurances in the contract for National Grid and the possibility that Cape Wind may reduce the project’s size.

“We absolutely will try to build the largest project possible,” said Duffy, adding that Cape Wind would not benefit as much from economies of scale if it built a smaller wind farm.

Cape Wind might do better by pursuing other projects, Benson said.

“The fact that we pursue Cape Wind has no bearing on the fact that we pursue other projects,” Duffy said.

The men also sparred over whether Cape Wind officials were sure of the project’s capacity factor – a measure of the percentage of time the turbines would be producing power.

Studies have shown that fossil fuel prices do not adequately reflect environmental impacts, Duffy said, adding that comparisons of renewable energy sources to traditional energy sources should include information on government subsidies for fossil fuels.

Cape Wind President Jim Gordon, who sat in the audience during Tuesday’s testimony, said the DPU hearings will demonstrate how Cape Wind fits in with the state Green Communities Act and how overall benefits of projects under the state law will be considered by regulators as well as price.

If Cape Wind is built, the state could become the hub for the U.S. offshore wind industry, he said. “The bigger story is whether Massachusetts is going to transition to a cleaner energy future or whether the fossil fuel interests are going to block that future,” he said.

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